Evaluating the impact of outsourcing on organisational profitability
- Author Lydia Adu - Gyamfi
- DOI
- Country : West Africa
- Subject : Procurement and supply Chain Management
Keywords : Material Sourcing, Outsourcing, Organizational Profitability
Abstract
According to Susarla et al. (2003) organizations turn to outsourcing for a number of reasons, the most prominent of which is cost cutting. Hindle (2005) supports this assertion when he stated that companies make the decision to outsource for a variety of reasons but cost reduction tends to be one of the primary drivers. Also, The Outsourcing Institute Membership (1998) sees financial justification as one of the top ten outsourcing success factors. Consequently, outsourcing is thought to be successful when such financial-economic expectations as the achievement of a cash infusion, cost reduction, production and transaction cost economies, lower prizes for consumers’ financial slack or even tax advantages are covered (Outsourcing Institute Membership, 1998). Other benefits of outsourcing to companies as according to Hindle (2005) include maximizing resources, making service improvements and freeing up in-house staff to focus on more strategic staffing issues such as workforce productivity, leadership development and succession planning. Another common reason for resorting to outsourcing is a firm's desire to focus its resources on those activities that are considered its strengths, often referred to as core competencies (Susarla et al., 2003). One of the complex and important business decisions facing firms today is whether to purchase from outside – Outsourcing. The Chartered Institute of Purchasing and Supply (CIPS) define outsourcing as "the process of identifying the most suitable expert third party service provider to undertake the management, administration and provision of the service in question". In other words, outsourcing is the act of one company contracting another to provide services that might otherwise be performed by in-house employees. Facilities management is a type of outsourced service in that it is the contracting out of all activities connected with the organisation and control of a facility such as catering or security. The Chartered Institute of Purchasing and Supply (CIPS) suggests that the first stage in any outsourcing strategy should be to determine whether the service in question should continue to be run in-house or whether it should be outsourced to an external service provider. If the in-house service can be improved, perhaps by advice from external consultants or ideas from a benchmarking exercise, coupled with increased training and targets for greater efficiency, the in-house option may remain attractive. The benefits of determining the "outsource “decision at the outset i.e. not having the in-house team compete with external service.
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